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The market is increasingly unpredictable. We still don't know when the coronavirus crash will end or how bad it will get.
Believe it or not, there's a bullish trade tailor-made for this situation: selling puts.
The CBOE Volatility Index (VIX) daily average is above 30 right now, double what it was last year. With each day, it seems like the market makes less and less sense.
Stocks recorded a 25% climb over the last three weeks despite record unemployment. It can be hard to square depression-level economic numbers with a rally like that.
The wild market swings have driven options prices up too. Because there's greater chance of an options contract swinging into the money, traders are willing to pay more for it.
But you can get on the other side of that trade. Selling options can make for a big payday.
Of course, selling options comes with risk. But Money Morning's options trading specialist, Tom Gentile, is going to show us how to limit that risk and maximize upside.
Options 101: It's never been easier to learn how to trade options, especially with our free guide from top trading expert Tom Gentile. Click here to get it.
It comes down to just five stocks…
Tom already gave us an options strategy on the failing cruise industry this past February. Some readers earned 1,000% gains in a matter of weeks.
Now that the markets are more unpredictable, the strategy is different. But Tom's new approach could have even more profit potential, no matter the direction of the underlying stock.
In fact, it made Tom $14,288 instantly, and all Tom had to do was hit a few buttons…
Why Selling Puts Is Your New Strategy
Selling options can be risky.
If you sell a call option, you'll have to sell the underlying stock if it hits the strike price. And there's no telling how far above the strike it will go. You may have to sell the stock at much lower than market value. In that sense, your risk is unlimited.
Put options have the same risk structure. When you sell a put option, you may have to buy 100 shares per contract if the stock drops past the strike price. This can be a downer if you're not looking to own 100 shares of the stock. Your upside is also capped at the price of the contract.
But when you throw massive volatility into the equation, like today, it becomes a generational buying opportunity. And it's just a matter of targeting the right stocks.
For instance, the $14,288 Tom pocketed was courtesy of Microsoft Corp. (NASDAQ: MSFT). That means if the stock drops and the put is exercised, Tom is buying one of the best tech stocks to buy on the dip.
It's a win-win.
Here's how Tom played it – and how you can use this strategy to turn five stocks into $1 million…
Selling Puts Is the Best Options Strategy Against Volatility
About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.